December 3, 2016
As much as financial technology innovators would like to believe in a challenge they impose on institutions, in reality, the hype is often exaggerated. Among factors that played a major role in bloating the FinTech threat are an outstanding marketing (like with Lemonade) and overvaluation by VC firms and angels. As a result, the reality check sometimes demonstrates holes in general judgment (Square-Starbucks deal, for example) and casts doubts over business models.
Nonetheless, we cannot deny an important role financial technology startups are playing in the ecosystem and vital for institutional players’ lessons they have taught. Eventually, financial institutions will have all important innovations adopted and will become equally savvy with technological advancements that FinTechs are now considering their advantages.
One of the most important lessons banks have learned is the power of digitization and frictionless online experience with financial services. An increasing number of banks worldwide invest efforts and funds to lead the digital wave, among which are well-known innovators Barclays, BBVA, DBS and others. In fact, according to DBS, 18% of its wealth customers and more than half of SME customers were acquired by the bank in 2015 via digital platforms.
Banking apps, however, are probably one of the most vivid embodiments of digital transformation that banks went through under the influence of technology startups. As noted by S&P, Bank customers have come to expect increasingly novel features from mobile bank apps, turning apps themselves into competitively differentiating products for banks. Apps have evolved from simple, digital snapshots of checking account information into sophisticated tools with an array of account management capabilities.
Given that among people who switched their bank in the last 12 months, 22% were motivated to do so in order to get a better mobile bank app experience, online experience with a financial institution appears to be a vital indicator of how successfully a bank can keep its customers.
International institutions like Chase (QR code-based payment service), Citibank (Citi Pay) and many others are also investing in mobile pay solutions along with efforts to enhance their mobile banking apps.
And those efforts do bear fruits: just this Wednesday, S&P published results of a study that ranks the top 20 US mobile banking apps by large financial institutions, putting Wells Fargo at the top as the most comprehensive mobile app, which offers 88% of the features for which apps were studied (P2P payments, touch ID, rewards program, Apple Watch App, view brokerage account, credit tracker, budgeting tools, cardless ATM, Android Wear App, etc.). Bank of America followed in second place with 75%, while Capital One, USAA and BB&T tied for third with 56%.
Analysts Kellsy Panno and Eric Turner noted that apps are becoming more important cost-saving instruments as banks transfer more customer service-oriented capabilities online and into apps. Bank apps are also becoming more important to banks in terms of their effect on bank customer turnover.
Features that have been most widely adopted by banks are reported to be P2P payments (by 86% of banks studied), touch ID (82%), rewards programs, view brokerage account and quick view (55% each).
It's not the most adopted features that are important though – what's even more important is the adoption of advanced specs, such as cardless ATMs (Wells Fargo, Bank of America), Android Wear App (USAA, Citizens Bank), budgeting tools (Wells Fargo, BB&T, Capital One, USAA), picture bill pay (BBVA Compass, US Bank, Fifth Third, Bank of the West), travel notification (Wells Fargo, Bank of America, USAA, Zions Bank) and schedule branch appointment (Wells Fargo, Bank of America, BB&T, Regions).
The study found that the most commonly missing feature in bank apps in the US that users would like to see is budgeting tools. Despite high demand, such tools are rare among the bank apps that were ranked. On the bright side – there are no financial and other barriers for leading institutions in developing such features and capitalizing on them as Bank of America and Wells Fargo are among the top three US banks by assets following JP Morgan.
Aside from mentioned features that have been enabled in mobile banking apps, a variety of other services are being digitized by financial institutions. Not only in the US but around the world, banks have adopted new technology across all of their services – account opening (Citi, SunTrust, US Bank, Liberty Bank, etc.), deposit taking, lending, wealth management and advising (robo-advice).
Another important area of development in the financial services industry has been noted in the study and by many professionals prior – artificial intelligence (AI) is expected to play an increasingly prominent role in future bank app iterations. Some examples of companies already working on employing AI in banking solutions include Bank of America, Axis Bank, RBS, Emirates Islamic, Digibank by DBS, Outbank and much more.
The lesson and all the efforts with AI in banking have been perpetuated by technology startups that brought development of AI on a level where financial institutions can directly benefit from their implementation. Over time, as chatbots advance and other forms of AI are meeting requirements of large institutions, the increasing number of banks will undoubtedly work on bringing the technology into everyday banking (financial institutions are already heavily investing in AI startups).